Profound statement re inflation

This is a very insightful statement, imho (from here):

"There is increasing concern among some on the (Fed) that freewheeling rate cuts are creating a significant problem with the Fed's goal of anchoring inflation expectations," said Scott Anderson, senior economist at Wells Fargo Economics. If people, companies and investors believe inflation will pick up, they will act in ways that can make inflation worse.

"It is important that inflation expectations remain stable. If those expectations become unhinged, they could rapidly fuel inflation," Plosser said in February. "Moreover, as we learned from the experience of the 1970s, once the public loses confidence in the Fed's commitment to price stability, it is very costly to the economy for the Fed to regain that confidence."


Basically, the Fed's job with respect to inflation is to manage inflation expectations, and if people expect higher inflation they tend to take actions with compound economic slowdown. This in turn causes the government to spend more money to artificially churn the economy more, which causes more inflation, etc. This is called stagflation, and the Fed seems to be doing everything they can to cause it currently.

Comments

Post a Comment

Popular posts from this blog

Why I Hate Obama-speak

Every time Obama speaks, it aggravates me. It's not because of his method of speaking or speech itself: he's a great public speaker who's clear, eloquent, and polished. It's also not because he uses a teleprompter obsessively, is very good at not straying from whatever canned message or pitch has been written for him, and dodges answering any probing questions with real information: most politicians have perfected these arts, and they have become so ingrained in our political process that they are as expected as they are unhelpful in conveying actual information. It's obviously also not because he lies: most politicians lie, usually very well, and Obama can state even laughable, preposterous fallacies without even breaking stride, but again, that's expected, normal, and uniform in today's politicians. No, none of these things are the reason Obama's speeches really get to me. See, Obama comes across as a smart guy, and every once in a while you get a semi...
Read more

If there was going to be a public health care plan...

I realize a public health care plan is a bad idea, but it did get me thinking: if I were making the bill, and everyone else strongly wanted a public plan, is there a form of the plan which I would be agreeable to? I thought about it, and I think a public plan would be eminently workable, provided it has some simple immutable provisions. Now, I don't think the Democrats are going to put anything like this into their disaster of a plan, much less be capable of adhering to all the requirements, but I would venture to say that if they truly wanted bipartisan support, this would be one way to get it; I strongly suspect most Republicans would back a public plan with my simple provisions. Without further ado, the provisions: - All public employees will be covered by the same public plan with the same benefits, from every level of government from janitors to the President. This will ensure that the plan is good, provides reasonable coverage, and Congress has a strong incentive to get it ri...
Read more

Why the housing market decline is far from over

Image
This chart shows the recast dates for various loans over the next five years, based on the current rate of negative amortization (copied from CalculatedRisk ). I think it would be fair to assume that most of these are going to be defaults, as soon as (or slightly after) the recast time; almost everyone who can afford their house is either already in a fixed-rate mortgage (and thus not appearing on this chart). This virtual tidal-wave of defaults represents roughly $25,000,000,000 worth of housing inventory being added to the market, per month, for the next five years . For reference, the NAR's latest statistics indicate there are only about $66B in sales of existing homes, per month, total, in the whole US. That lines up pretty well with the latest estimations of total home sales which are foreclosures, which is around 45% (REO's are selling slightly better than non-REO's, cause they are more realistically priced). Most people agree that the housing market is not likely to...
Read more